LONDON/ATHENS, April 10 (IFR/Reuters) - Two years after
nearly crashing out of the euro zone, Greece returned to the
bond market on Thursday with investors hungry for high returns
scooping up its debt in a 3-billion euro deal that could mark
the beginning of the end of its bailout.

Athens offered a yield of 4.95 percent to sell five-year
bonds, the second lowest borrowing costs for a bailed-out euro
zone state returning to the market.

The bonds, the first sold by the Greek government since the
European Union and IMF rescued it four years ago, attracted more
than 20 billion euros of interest from over 550 investors,
including 1.3 billion from the banks which are lead managing the
deal.

Greece - unlike its bailed-out euro zone peers Ireland and
Portugal - defaulted on its debts as recently as 2012 and its
credit rating remains deep in "junk" territory.

However, the bonds attracted investors because they offer a
relatively high return in an era of ultra-low interest rates.
Expectations that the European Central Bank will take further
steps to boost the euro zone economy are also fuelling appetite
for bonds issued by the bloc's riskier countries.

Greece's government said the sale marked the beginning of
the end of the tough austerity linked to the 237-billion euro
($328 billion) bailout, which pushed unemployment to a record
27.7 percent and wiped out almost a quarter of the economy.

"Today, Greece took one more decisive step to exit the
crisis," Prime Minister Antonis Samaras said in a televised
address. "Confidence in our country was confirmed by the most
objective judge - the markets."

Thursday's bond sale paved the way for the government and
companies to undertake bigger and cheaper borrowings from
international markets in the future.

Greece has defaulted a number of times in its modern history
and its total debt is about 175 percent of its annual economic
output, a level considered by economists as unaffordable in the
long run. Investors, however, appear willing to overlook the
fact that private bond holders suffered heavy losses when 130
billion euros of Greek debt was restructured two years ago .

"What this shows as much as anything is that capital markets
participants have relatively short-term memories," said Jeremy
Lawson, chief economist at Britain's Standard Life. "If things
look like they are improving, then there will always be someone
ready to lend to a given country - regardless of what the
history of default may be."

A GRADUAL RETURN

Athens considers the sale as part of a gradual return to
markets. It does not expect to cover all its funding needs from
investors before 2016.

The country's creditors also welcomed the move, saying it
vindicated the tough economic policies endured by the Greek
people and would bolster sentiment throughout Europe.

"It is an important sign that the Greek economy is starting
to regain the confidence of investors," said European Commission
Vice President Siim Kallas, who is standing in as the EU's
Economic and Monetary Affairs Commissioner.

But Kallas said Athens must stick to the path of budget
reforms to strengthen its recovery. "It is crucial to continue
ensuring rigorous delivery of the fiscal targets," he said.

Greece follows Ireland and Portugal in returning to the
markets but its borrowing costs remain the highest in the euro
zone. Still, the solid reception for the bonds buoyed sentiment
and drove borrowing costs of other "peripheral" euro zone
governments to the lowest level in a number of years.

Irish, Spanish and Italian 10-year bond yields were all 5
basis points down on the day at 2.90 percent, 3.16
and 3.15 percent A respectively.

An Irish sale of 1 billion euros of 10-year bonds also drew
solid demand at a yield of 2.917 percent at its second regular
auction since exiting its bailout in December.

Greece's debt currently stands at about 320 billion euros
and it is rated nine notches below investment grade at Caa3 by
the Moody's agency. Standard and Poor's and Fitch rank Greece
six notches below investment grade at B-.

Deputy Prime Minister Evangelos Venizelos denied that the
debt burden, which Greece aims to cut to 120 percent of GDP, is
unaffordable. "The bond issue proves the debt is sustainable,
otherwise the markets wouldn't have bought it," he said.

About 85 percent of Greece's debt is in the hands of the EU
and International Monetary Fund, at very low interest rates and
on a long repayment schedule. Private creditors hold about 30
billion euros of bonds with maturities between 10 and 30 years.

POLITICS IN CRISIS MODE

But a dawn explosion in a commercial district of Athens on
Thursday showed how fragile the country's politics and society
remain after six years of recession, its worst peace-time slump
ever.

In the biggest bomb explosion the capital has seen in years,
a booby-trapped car detonated on a street near a central bank
building which houses the offices of the IMF's resident
representative.

The blast happened a stone's throw away from the finance
ministry, the privatisations agency and the headquarters of
Piraeus Bank, the country's second-biggest lender.

No-one has yet claimed responsibility for the attack, which
caused damage but no injuries and which police believe was
carried out by leftist or anarchist guerrilla groups.

The explosion also came a day before a visit by German
Chancellor Angela Merkel, whom many Greeks accuse of forcing
painful cuts in return for the aid keeping it afloat.

Police have banned protests during her visit, but
anti-bailout groups and parties are preparing rallies on the day
to denounce the austerity policies supported by Germany,
Greece's biggest creditor.

Data released on Thursday showed the unemployment rate
stubbornly high at 26.7 percent in January, even though it
dropped to the lowest level in 11 months.

Greeks' real disposable income has fallen by about 40
percent over the past six years. There has also been a wave of
corporate bankruptcies while suicides have jumped by a third
from pre-crisis level, prompting the opposition to speak of a
"humanitarian crisis".

The fragile coalition led by Samaras has just a two-seat
majority in parliament. The anti-bailout, leftist Syriza party,
which has a slight lead in opinion polls, has accused Samaras of
using the bond sale to score political points before European
elections in May.

($1 = 0.7234 Euros)
(Additional reporting by Costas Pitas and Renee Maltezou in
Athens, and Emelia Sithole-Matarise and John Geddie in London.
Writing by Harry Papachristou, editing by Giles Elgood and David
Stamp)

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